Sweet Speculation; J. Ahrens

When the opportunity presents itself, people will make a buck. What is remarkable is how frequently the opportunity presents itself. The case of the Russian entrepreneur who speculates in Snickers is not unlike that of the American entrepreneur who specu lates in agricultural commodities. When a commodities broker buys a farmer's wheat Dr. Ahrens is Assistant Professor ofPhilosophy at Hanover College in Indiana. at a fixed price per bushel before the wheat is even planted, he is speculating (Le., taking a risk) that the wheat willactually sell for a higher price at harvest time. The farmer, on the other hand, trades the pos sibility of a higher price (and the risk of a lower one) for certainty and security. When a Russian entrepreneur holds a shipment of Snickers for six months, he is also specu lating that the price will go up. The supplier who sold him the Snickers is trading risk for certainty and, perhaps, the steady cash flow he needs to continue to import goods. And as long as some people prefer the certainty of less money now to the possibility of more money later-because they prefer security to risk, or because they need a steady cash flow, or for some other reason still-any market, even a "black" market, will pro vide numerous opportunities for such spec ulation.

The chaotic, hyperinflationary Russian economy has produced a substantial num ber of speculators in the brief period since the collapse of Communism-speculators in real estate, consumer goods, currency-and it has made many of them quite wealthy, at least by local standards. The response of the Russian populace to this phenomenon mir rors the response of Americans to success ful speculators in our own economy. Finan cial speculators who reap enormous profits from correctly anticipating market fluctua tions are not generally respected in the United States; they are commonly thought to be unproductive parasites, and probably criminals as well. In a like manner, Russians 358 commonly lump together all successful members of the emerging business class whether they be drug dealers or currency speculators or real estate speculators or importers dealing in consumer goodsand characterize them as "mafia." And, like Americans, they resent the disproportionate economic and political influence, and the relatively high standard of living, that ac crue to successful speculation.

Of course, some speculators are crimi nals, and it is quite natural to resent those who live well off ill-gotten gains. Indeed, it is a natural, though not very laudable, ten dency of human beings to resent anyone who has whatever one does not. And the results of speculation are not always entirely congruent with the preferences of consum ers:Russians would like their Snickers to be fresher (and they would like to be able to buy less profitable items like needles and thread). Everyone would like to buy their food at lower prices. Americans would like to see less of the instability in large compa nies and financial institutions that results from unsuccessful or especially predatory speculation. These are understandable sources of resentment, even if they are not entirely rational. But I think there is some thing more at work here. It is worth noting that people are generally quite resistant to the argument that specu lators make an important contribution to the market-that there might be less food, no Snickers, a lower level of economic activity in general without the activities of specula tors. That speculators can profit from taking risks, providing capital, improving effi ciency, and so forth, is more likely to be seen as a defect in the market than a virtue of speculators. What is at work here is an idea that has been in place at least since the medieval injunction against usury.

Thomas Aquinas, along with other medi eval philosophers and theologians, argued that lending money at interest is morally repugnant because "this is to sell what does not exist, and this evidently leads to inequal ity which is contrary to justice." (Summa Theologica II-II, Que~tion 78) The specula tor, like the usurer, traffics in what does not 359 exist, at least not yet. The speculator does not grow any food or import any Snickers. From one perspective, it seems that the speculator produces nothing, but profits from the productive activities of others. From another perspective, however, one might say that what the speculator produces is the market itself (or, at any rate, that the speculator facilitates the exchanges that constitute the market). From either perspec tive, speculation appears to be a very pure form of capitalist practice, and thus specu lation is a magnet for any resentment that capitalism engenders.

But it seems clear that this resentment is misplaced. Adam Smith's original defense of the market economy provides a crucial insight into how to think about the moral dimension of speculation. Although Smith's argument that division of labor and freedom of exchange constitute the most efficient mode of economic organization is most often cited by contemporary defenders of capital ism, this is by no means his most fundamen tal argument. For Smith also argued that the market economy is the only economic sys tem that functions to bring self-interest into harmony with the good of society. The Virtue of Capitalism Smith, unlike many other moral theorists, did not construe the common human incli nation to pursue one's own self-interest as inherently evil, as something incompatible with the moral life. Rather, he construed self-interest as an essential feature of indi vidual wellbeing, and also as a force that might be directed toward the public good.

The great virtue of capitalism, he argued, is that it accomplishes precisely this: capital ism is nothing more nor less than a frame work of laws and institutions which allows people to enrich themselves (i.e., pursue self-interest) only, or at least primarily, by providing goods and services that contribute to the well-beingof others. Capitalism trans forms the pursuit of self-interest into the pursuit of mutually profitable exchanges with the other members of one's commu nity, i.e., into pursuit of the public good.

360 THE FREEMAN • JULY 1994 Seen in this light, the speculator becomes a kind of economic adventurer, a hero of the capitalist revolution, if you will. The suc cessful speculator is one who, through su perior luck, imagination, or intelligence, is able to identify previously unnoticed oppor tunities for mutually beneficial exchanges. By facilitating these exchanges, the specu lator expands the economic horizons of a community in much the same way that more traditional adventurers expand our geo graphical or intellectual horizons. However, and this is a crucial component of Smith's argument that is often forgotten, this pro cess works only within an appropriate framework of laws and other social institu tions. If the laws and institutions of a com munity reward exchanges which benefit (some of) the participants at the expense of other members of the community, these are the exchanges that speculators will fa cilitate. If economic laws and institutions reward exchanges that disrupt the economy, we can be sure that the economy will be disrupted. Thus, the task of the political economist is a difficult one-to establish a framework of laws and incentives that ac complishes this harmonization of self interest with the public good. People will speculate. Whether or not this benefits the community depends largely on whether or not society recognizes and seeks to exploit the potential benefits of speculation.

The genius of Adam Smith's defense of the market is his recognition of the com plexity of human nature. The natural incli nation to pursue one's own self-interest is potentially anti-social, but it is also a poten tial source of virtually unlimited economic progress. The resentment of speculators that is pervasive in both post-Communist Russia and the contemporary United States is, at least in part, an attempt to simplify human nature by identifying the pursuit of self-interest as something inherently anti social, and thus as something that must be suppressed in order to create a just and humane society. And this has the seemingly paradoxical implication that post-Commu nist Russia and the contemporary United States face essentially the same problem. Both must seek to restore faith in the value of individual entrepreneurship-Russia in order to create a market economy and the United States in order to preserve the mar ket economy that we already have.

I am optimistic that Russia willsucceed in this task. Despite the resentment of eco nomic success that is pervasive in Russia, most Russians are quite well aware of the benefits of a more or less unfettered market, and quite unwillingto return to the managed economy of the recent past. (Even the reconstituted Communist Party claims that it does not oppose the transition to a market economy but, rather, that it simply wishes to mitigate the dislocations attendant on rapid social change.) I am less optimistic that the United States will preserve a mar ket economy in the face of increasing re sentment of successful speculators. De cades of relative economic success have created a political culture that encourages impatience and envy. Americans are no longer willing to trust the "invisible hand" of the market, or to undertake the difficult task of creating a political culture which allows this invisible hand to harmonize self interest with the public good. Instead, they want to enjoy the benefits of speculation-a responsive and expanding economy-with out the costs. 0 THEFREEMAN IDEASON LIBERTY ART AND COMMERCE by Barbara Dodsworth T oday we are aware of the presence of the arts in our society in a broader way than ever before, and we have commerce to thank for it. Business, in response to the desires of consumers, has created reproduc tions and adaptations of works of fine art that surround us. Few of us are without at least one or two prints of famous works; images from the history of art grace objects of all kinds, down to the workaday tee shirt.